SBA Loans in 2021

Need an SBA Loan for your small business?  

There is no time like the present.

The SBA (Small Business Administration) partners with traditional banks to provide financing to small business owners nationwide. SBA guaranteed loans can be used for a variety of business purposes, including starting or expanding an existing business.  With an SBA guarantee in place, Banks and other lenders can make loans to small businesses that might not otherwise qualify.

If you are thinking of starting a business, expanding your business, or refinancing some higher interest rate debt, recent changes to SBA lending programs make this an important time to considering moving forward with those plans.

On December 27, 2020, the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (Act) was signed into law.  Within the Act were several temporary improvements the flagship SBA 7(a) and 504 programs that make obtaining an SBA loan extremely attractive for both banks and borrowers through September 30, 2021.

Here are the details:

SBA Express Loans:  SBA Express loans typically involve a 50% guaranty on loan amounts up to $350,000.  The Act increases the guaranty provided to the bank to 75% for loans up to $350,000.  For those loans above $350,000, the SBA will provide a 50% guaranty to loans up to a maximum amount of $1,000,000.  Guaranty fees are eliminated during this period. On October 1, 2021, the guaranty percentage reverts back to the 50% on all express loans and the maximum loan amount drops to $500,000.  SBA Express loans are the quickest and easiest SBA loans to get from participating lenders.

Traditional SBA 7(a) Loans:  Traditional SBA 7(a) loans typically involve a 75% guaranty on loan amounts up to $5,000,000.  The Act increases the guaranty provided to banks to 90%.  There was no change in the maximum loan amount.  Guaranty fees are eliminated during this period.  For example, a loan of $2,000,000, the guaranty fee would be $54,000 so the cost savings are significant.  

SBA 504 Loan Program:  The SBA 504 loan program is designed to finance/refinance certain real estate and equipment assets via long-term loans.  More details can be found HERE.  The Act eliminates third party lender fees and CDC processing fees through September 30, 2021.  The elimination of these fees makes 504 loans especially attractive right now.  For example, under a typical 504 loan structure, a loan of $2,000,000 would include third party lender fees of $5,000, and CDC processing fees of $12,000.  Who couldn’t use an additional $17,000 in their bank account right now?

Section 1112 Payments: Nothing like saving the best for last! The original CARES Act provided payment assistance to certain 7(a), 504 and microloan borrowers.  Previously, under section 1112, the government agreed to pay 6 months of loan payments for borrowers in those programs.  Under new legislation, Section 1112 payments have been extended to include new 7(a), 504 and microloans approved beginning on February 1, 2021 and ending on September 30, 2021.  This means that any new 7(a), 504 and microloans approved during that window will get their loan payments made by the federal government for 6 months.  For 504 loans, the federal government will only make payments associated with the SBA portion of those projects.  Borrowers will still have to make payments on the bank portion.  Monthly loan payment amounts are capped at $9,000.  Borrowers will have to pay any remaining loan payment amount over $9,000.  Talk about free money!

This is a great time to consider expanding your business with interest rates continuing to hover near all-time lows and recent legislative changes that make SBA lending incredibly cost-effective.  If you have any questions regarding this post or just need help navigating any part of the SBA loan process, SS&C Solutions can help.  For additional information please reach one of our advisors here:  SS&C Solutions.